How to Use Credit Bureau Data to Better Manage Retail Portfolio

1. How to Use Credit Bureau Data to Better Manage Retail Portfolio Vasil Verulashvili Head of Credit Risk Bank of Georgia January 2014, Tbilisi

2. Contents • Brief Introduction – Bank of Georgia • General Benefits of Credit Bureau • How to Use Credit Bureau Data in Different Processes • How to Use Credit Bureau Data in Decision Models • In which Models Credit Bureau Data is Generally Used • Summary

3. Brief introduction – Bank of Georgia • JSC Bank of Georgia (LSE: BGEO) is the largest commercial bank in the country, with 34.1 % market share by total assets; • The only Georgian company with credit ratings from all three global rating agencies: S&P: ‘BB-’, Moody's: ‘B1/Ba3’ (foreign and local currency), Fitch Ratings: ‘BB-’; outlooks are ‘Stable’ • JSC Bank of GeorgiaFirst and still the only entity from Georgia to list on the London Stock Exchange since 2006 (in the form of GDRs since 2006 and premium listing since February 2012, in FTSE 250);

4. Brief introduction – Bank of Georgia • JSC Bank of Georgia provids retail banking, corporate banking, wealth management, brokerage and insurance services to its clients; • JSC Bank of Georgia serves more than one million customers through one of the largest distribution networks in Georgia, largest ATM network, self service terminals and a full-service remote banking platform and a modern call center;

5. Contents • Brief Introduction – Bank of Georgia • General Benefits of Credit Bureau • How to Use Credit Bureau Data in Different Processes • How to Use Credit Bureau Data in Decision Models • In which Models Credit Bureau Data is Generally Used • Summary

6. General Benefits of Credit Bureau • Makes more complete picture of customer (other banks lending, public data); • Supports responsible lending and reduces credit losses; • Increases predictive power of scoring models; • Increases lending opportunity of financial institutions; • Increases access to credit for customers; • Provides additional services, improves quality of lending processes;

7. General Benefits of Credit Bureau Credit Bureau in Georgia (CreditInfo Georgia) was founded in 2005 and played one of the most important role in developing of retail lending in Georgia, especially in Bank of Georgia; CreditInfo Georgia is now the only credit bureau in Georgian market servicing banks, MFIs, insurance, telecommunication companies, etc… CreditInfo Georgia provides efficient decision making tools as well as access to credit information databases.

8. Contents • Brief Introduction – Bank of Georgia • General Benefits of Credit Bureau • How to Use Credit Bureau Data in Different Processes • How to Use Credit Bureau Data in Decision Models • In which Models Credit Bureau Data is Generally Used • Summary

9. How to Use CB Data in Different Processes What are we looking for in Credit Reports? • Current Liabilities: • Number and amounts of liabilities • Types of products • Monthly payment amounts • Number of banks • Collateral… • Credit History: • Length of payment history • Delinquency status • Credit usage pattern • Products used… • Inquiries; • Court judgments, debtors records, tax obligations, salary check status…

10. How to Use CB Data in Different Processes How are we getting Credit Report? • Through the Credit Bureau website • Through the web service directly in application processing system Detailed information from reports can be summarized and used in calculations automatically, also shown in user forms when needed • Through the web service in batch processes White list, Cross & Up selling • Getting triggers from Credit Bureau Monitoring service Collection/Retention processes

11. How to Use CB Data in Different Processes Sample flowchart of application processing and decision making process Data Collecting Area Application Form Core System, Reporting DWH Credit Bureau Simple Validation Identity Verification Decision Making Area Reject Manual Underwriting Calculations Corrections Scorecards (App, Fraud) Policy Rules Refer Accept Disbursement Area Confirmation & Contract Final Decision Core System

12. Contents • Brief Introduction – Bank of Georgia • General Benefits of Credit Bureau • How to Use Credit Bureau Data in Different Processes • How to Use Credit Bureau Data in Decision Models • In which Models Credit Bureau Data is Generally Used • Summary

13. How to Use CB Data in Decision Models Choice 1. Application Details Internal Data Internal Score LOGISTIC MODEL Bureau Data Policy Decision Score Decision Bureau Score

14. How to Use CB Data in Decision Models Choice 2. Application Details Internal Data Internal Score Bureau Score Bureau Data LOGISTIC MODEL Policy Decision Score Decision

15. How to Use CB Data in Decision Models Stylized representation of uplifts As well as better scores, policy rules can have a significant additional advantage!

16. How to Use CB Data in Decision Models

17. How to Use CB Data in Decision Models

18. Contents • Brief Introduction – Bank of Georgia • General Benefits of Credit Bureau • How to Use Credit Bureau Data in Different Processes • How to Use Credit Bureau Data in Decision Models • Different Models Where CB Data is used • Summary

19. Different Models Where CB Data is used • Portfolio management • Credit risk model • Size of Wallet & Spend potential model • Retention model • Capital • Provisioning • AIRB capital model • ICAAP • Loan Origination • Decision model • Fraud model • Policy rules • Pre-approvals • Collection • Collection scoring model • Pre-emptive strategies • When to sell Portfolio and at what price

20. Summary • More precise approach compare to the simple (Policy based) decision making process • Credit Bureau data based Scoring model is more predictive • CB Score is very important parameter in decision making model Result • Better & Faster Decisions

21. Q & A